Is AMD Stock a Buy After 53% Decline? An Analysis
Shares of Advanced Micro Devices (NASDAQ: AMD) have plummeted 53% over the past year, while AI leader Nvidia(NASDAQ: NVDA) has a 25% gain. Is this dip an opportunity to buy AMD stock or a warning sign for investors to steer clear? Let’s explore the potential for AMD over the next three years.
The AI Hardware Opportunity
The introduction of OpenAI’s ChatGPT in late 2022 ignited excitement across Wall Street and Silicon Valley. Analysts at McKinsey estimate that this technology could add between $2.6 trillion and $4.4 trillion to the global economy by reshaping labor dynamics. Companies quickly sought generative AI hardware to remain competitive.
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AMD is positioned to gain from this AI shift. Similar to Nvidia, AMD manufactures AI accelerator chips essential for training and running large language models (LLMs). Although Nvidia commands a significant market share of 70% to 95%, the rapidly expanding market allows for competition, giving AMD a chance to capture customers.
As an underdog, AMD offers several key advantages in this space. Many companies are cautious about relying too heavily on Nvidia for their AI hardware needs, given the potential risks of supply chain issues or high costs. Nvidia’s premier Blackwell chips range from $30,000 to $40,000 each, creating an avenue for AMD to competitively price its offerings.
Additionally, AMD provides an open-source software platform named ROCm, designed to rival Nvidia’s CUDA. This platform assists developers in programming AMD hardware for AI applications.
Operational Challenges Yet Strong Growth
The focus on AI is clearly benefiting AMD’s business. In the fourth quarter, revenue rose by 24% to $7.7 billion. While this number appears moderate, the company’s data center arm—which sells AI chips—saw an impressive 69% increase, reaching $3.9 billion, making up 51% of overall sales. In contrast to Nvidia, which relies on its data center sector for about 90% of its revenue, AMD features a more diversified revenue stream, including CPUs and various types of PC and laptop components.
The decline in AMD’s non-AI businesses currently holds back its overall growth rate. However, this diversification could also shield the company against potential downturns in AI hardware demand, an increasing concern in this sector.
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In February, Microsoft CEO Satya Nadella raised concerns by stating that generative AI has yet to deliver significant value. Reports indicate that Microsoft may also have canceled leases for new U.S. data centers, suggesting a potential reduction in its AI investments. Furthermore, the rise of DeepSeek, which successfully trained a competitive LLM using older GPU technology, hints that businesses might be able to maintain relevance without the latest hardware.
AMD’s Three-Year Outlook
AMD currently possesses a forward price-to-earnings (P/E) ratio of 22, suggesting its stock is undervalued, particularly given its diverse portfolio and involvement in the burgeoning generative AI market. For context, the Nasdaq-100 has a higher forward P/E of 26, while Nvidia stands at 25.
However, it is important to note that AMD’s growth is uncertain amid the speculative nature of generative AI. Some indications point to major companies like Microsoft scaling back their investments. For now, AMD stock appears to be a hold until further developments clarify its future trajectory.
Should You Invest $1,000 in AMD Stock Now?
Before purchasing AMD stock, consider this:
The Motley Fool Stock Advisor analyst team has identified the 10 best stocks to buy now, and AMD is not among them. The selected stocks are expected to yield substantial returns in future market conditions.
For context, Nvidia was recommended on April 15, 2005. If you had invested $1,000 at that time, you’d have $690,624 today!*
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*Stock Advisor returns as of March 10, 2025
Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
